Market Overview November
Macro concerns receded somewhat during the third quarter, with worries of a “hard landing” in China and of a global double-dip recession abating while governments stated readiness for further quantitative easing should the recovery falter. Nonetheless, our macro view is still that markets will remain rangebound.
In Europe, the focus during the third quarter was more on fiscal worries and bank stress tests than on improving macro indicators. Ireland and Portugal worries escalated, Spain’s credit rating was cut, and several countries announced further budget measures.
In the US, the ISM Index held up well after the peak during the second quarter; the labour market showed small improvements and the housing sector disappointed. President Obama launched more spending and the Fed showed readiness for more quantitative easing. The drivers of environmental markets in the Asia Pacific region continued to develop well.
During the third quarter, Asian signals stayed strong and worries about the Chinese property market abated. The range of investment opportunities across the region and the environmental sub-sectors continued to develop as investment expands to reduce oil dependency, provide energy security, ensure water availability and mitigate inflationary infrastructure bottlenecks.
Notable International Developments
The leaders in Europe, the US and China have recently focused on the role of cleantech as a driver for job creation, but recent climate meetings in Bonn and Tianjin have not brought the international community closer to a binding climate treaty ahead of the Cancun meeting in December.
US political deadlock has prevented any federal climate or energy legislation. The latest attempt by Democrat Senator Bingaman for a stand-alone RESbill is expected to come to vote after the November mid-term elections. It has a slim chance of passing. The EPA is stepping up its role in the absence of federal legislation and will introduce a contested regulation limiting GHG emissions based on the Clean Air Act in January.
At state level, California has a crucial RES-bill voting in November. It would require utilities in California to generate 33% of energy from renewable power sources by 2020. California is the leader in US state environmental legislation; this vote is therefore seen as crucial.
Germany announced 12-year extensions to existing nuclear plants and cuts in feed-in-tariffs to the over-heated solar sector but remains committed to renewable energy in the long-term. German targets are for 80% of energy mix from renewables by 2050 with a focus on wind, bioenergy and grid expansion.
Asia-Pacific environmental policy has been positive with more colour on the 12th 5-year plan in China. Government procurement should see a fleet of a half million electric vehicles by 2012 and a domestic national emissions trading scheme. Carbon and resource taxes have also been announced, as has grid investment and a RMB5trn budget for non-fossil fuels development, with a focus on wind, natural gas
and nuclear to 2020.
(Source: Impax Environmental Markets Trust Investment Report)